Leo's Notes:Random

Canadian Economy

Public sector provides a significant portion of employment in the Canadian economy. Public sector jobs typically have less job loss and slightly earlier average retirement age (this has to be higher because public sector drives higher taxes). Public sector workers are also paid 12% more than their private-sector counterparts (including benefits) according to a study by the Fraser Institute.

Sector	% by employment	Notes
Public	20%	50% Provincial, 38% Local, 12% Federal Retirement age: 60 Registered Pension Plan Coverage: 88%
Private	64%	Retirement age: 62.4 Registered Pension Plan Coverage: 24%
Self-Employment	15%

The public sector grows because of inefficiencies, unions, or people wanting to give jobs in exchange for votes; it rarely shrinks. Shrinking public sector also involves hefty severance packages which makes it unattractive to politicians.

The middle class has been shrinking since the 1970s (Pew research center). This is typical of late stage statism because as the government grows:

• Government borrows and spends more leading to higher taxes
• Poor get trapped in welfare / government programs
• Rich manipulates the state for benefits
• All of which are paid for mainly by the middle class.

When the middle class erodes, so does the stability of the economy - see the Wiemar Republic.

Welfare / programs reduce the demand for social change by subduing the sense of outrage about a system that doesn't work for them because they can kind of get by. Money is thrown at the poor to keep the demand and desire for social change at bay which creates a dependency on the (broken) system.

Debt

Debt is fundamentally deferred losses; spending the future.

Arguments or justification for debt:

• It isn't real
• 'we' owe it to ourselves
• No repercussions, nothing will happen

Counter examples to these reasons are:

• Entitlement reform (owe money to pension, then changing the amount paid out)
• Countries/people suffering from debt
• Past examples of sovereign defaults

Debt means low investment which means low productivity growth in the future. (explain? Could debt cause investment now and productivity growth later?)

Gross Canadian federal government debt grew significantly since the 1960's because of the rise of the welfare state. In the late 90's, government paid 40 cents on the dollar just for interest payments.

Household debt is a side effect of declining real household income and increasing taxes. This is made doubly worse with the government printing money and artificially keeping the interest rates low (to avoid paying interest on its own debt) since inflation provokes consumer spending and low interest rates encourage debt. Household debt grew from 80% of personal disposable income in 1980 to over 150% in 2011.

As of 2017, Statistics Canada (from Equifax) said the national consumer debt including mortgages is at 1.718 trillion.

A lot of the debt is driven by the belief that a consumer good like a house is a good investment and raises in value which is not true; you can't get rich by investing in consumption good (they lose value over time). The idea that the house is like an ATM which continues to rise in value is what fools people into over leveraging themselves.

The debt burden has grown to the point where consumer spending is slowing (is this true still?).

The economy doesn't grow because people buy stuff, it grows because there's capital investment in improving efficiency in various things (ie. business to business). The fact people buy things is a side effect. "If you by a bunch of stuff, it's good for the economy" is a lie; giving everyone a million dollars to buy things (like stimiulus packages) will not fix the economy because the money isn't invested in improvements.

GDP measures are ridiculous. People who are sick adds to the GDP.

Earning & Consumption

Median earnings in full-time workers increased $53 annually between 1980 and 2005. When accounting rising taxes, inflation, and national debt[1], the increase buys a lot less than before.

• 1: Higher national debt results in deferred loss of income in the future. Either the government defaults on the debt (which results in the currency being worthless), or the government raises taxes.

Companies are also not investing due to uncertain regime changes or uncertain laws that may come into effect and are instead saving it.

The price of shares have risen while the earnings per share (EPS) has declined. The only reason why shares continue to increase while EPS declines is if money is pumped into the stock market (ie. central banks buying up shares)

Real Estate Market

In summary, prices in the Canadian real estate market has risen too much too fast due to artificially low interest rates.

Question: How many homes are being constructed this year?

The housing market, like any other market (such as the stock market), runs on debt with only a small percentage of real wealth; the rest is fictional. Similar to how the stock market runs on margins, the real estate runs on banks lending lots of easy money to people.

The average price of a house in the 1980s were around $60,000 and has risen to over $350,000 in 2011.

Real estate prices have gone up for various reasons:

• immigration
• artificially and historically low interest rates (citation) resulting in more money being pumped into the market.
• government likes getting people into houses since it produces lots of property taxes, especially if they are tied to multi-decade debts (people tend not to agitate for social change)

With low interest rates, people have less incentive to save and more incentive to borrow more and more with the mentality that with a small percentage now, they think they own it, when in actuality the bank/lender actually owns it.

This has been made worse with foreign national buyer laws such as BC's 15% foreign buyer's tax in an attempt to reduce the heated housing prices in Vancouver. Ontario also implemented a similar tax. The result of such a tax is that prices are now hidden with the cost of the house as builders and real estate companies now try and cover the taxes, resulting in an overall higher housing price.

As housing prices rise year after year due to low interest rates, eventually the housing price will fall as the market corrects itself (why??). A decline in prices will result in a very steep drop in prices as the lie that your house is your ATM is revealed. A drop in housing prices will result in many people having their wealth wiped out simply because all their wealth is tied to the debt associated with their home. The reduction of wealth will also exacerbate the slow economy.

To avoid slowing the economy, the government and bank of Canada will try reducing the interest rates or making it negative. However, low interest rates will result in higher and higher housing prices while enabling more and more debt (both in household and government debt). Eventually, something must give.

If the interest rates rises, the housing prices will drop even more significantly when people are forced to refinance their home and cannot afford it.

Free Market

In a free market, the government does not monopolize or control currency. There used to be competing currencies from different banks (eg. by issuing their own checks) and is fundamental to a free market. There is nothing magical about money, it's just a medium of exchange/transport of goods - it's a good or a commodity that you use.

Government monopolizing and controlling currency is the most fundamental violation of property since it is forcing everyone to use their fiat/paper currency and using violence to prevent people from competing in a legitimate sphere of economic activity (ie. creating a medium of exchange). Anytime government is in control of currency, massive theft is happening whether it is through printing (inflation, eroding savings, lessen incentive of having savings, which lessens the accumulation of capital, which slows down and destroys economic growth). Inflation is a crushing tax on the poor since the poor has the highest proportion of fixed expenses vs their income. Made worse, the newly created money will be spent by people closest to the government first (ie, richest people) and gets spent near its real original dollar value until inflation hits as it trickles through the economy.

Since the creation of the federal reserve, the US dollar has lost 95% of its value (is this still accurate?)

Interest Rates

Things that have a value has a price. Money's price is its interest rate. Interest rates exist because we are mortal and we want things now rather than later. Interest rates are fundamentally intrinsic to the productive operation of a free market. It's a signal to how economic resources should be allocated.

Fundamentally, interest rates are determined by how much available capital is around:

• If people are saving lots of money, the price of money goes down. Companies will take advantage of cheaper money to expand and also because people are saving to spend later.
• If people are spending a lot of money and not saving, the price of money goes up. Companies will not expand, should consolidate, or contract. (why?)

Printing Money

When government starts printing money, in a free market, interest rates should rise. The reason for an increase is because with more currency in circulation, the currency will lose its value over time. When taking a loan, the dollars you pay back in the future are going to be worth less than the dollars you are borrowing now and the interest rate will reflect that to cover the difference.

For example, if the interest rate is 5%, but the currency is losing 10% over the next year, the interest rate will immediately be 15%.

Without controlling the interest rate, printing money will not make the government that much since the economy will be at a standstill (right?). It's for this reason when government starts printing money, they also immediately take control and cap interest rates so that others will pay for it down the road.

See Also

• There Will Be No Economic Recovery. Prepare Yourself Accordingly.